(Bloomberg) -- Eddie Lampert, the dogged billionaire who’s hitched his career and reputation to a fading American retail icon, will get another chance at reviving Sears Holdings Corp.
In an agreement reached in the wee hours of Wednesday in New York, Lampert won an auction with a plan that will keep the bankrupt company in business and save thousands of jobs, according to people with knowledge of the discussions. The agreement still needs to be approved by the U.S. judge overseeing the bankruptcy.
Lampert’s offer prevailed over competing proposals from liquidators that would have forced the 126-year-old department-store chain to shut down and sell its assets. The bid is d at over $5 billion and represents an improvement of more than $150 million over the hedge fund manager’s previous offer, said the people, who asked not to be identified because the talks are confidential.
The agreement caps two days of discussions behind closed doors to determine whether Sears would be worth more dead or alive. Sticking points had included whether Lampert, the former chief executive officer and current chairman, should be insulated from lawsuits over his previous turnaround deals for the company, Bloomberg previously reported. The final agreement doesn’t include such a release for Lampert, the people said.
Representatives for Sears Holdings and for ESL Investments Inc., the hedge fund run by Lampert that made the offer, declined to comment. A court hearing in the Sears bankruptcy case is scheduled for Jan. 18 in White Plains, New York.
ESL is Sears’s biggest shareholder and creditor. Lampert now faces the challenge of returning a slimmed-down version of the company to profitability after billions of losses under his management. His plan will preserve 425 stores and the jobs of 45,000 employees, according to one of the people familiar. Sears’s stock soared as much as 70 percent on Wednesday and traded around 74 cents at 2:41 p.m. in New York.
As Sears, Roebuck & Co., the chain revolutionized American retail with its mail-order catalog. One hundred years ago, the company leveraged the newest technology -- the U.S. postal system -- to become the Amazon.com of the 20th century.
Postwar Boom
The retailer boomed in the decades after World War II along with a growing middle class. But it wasn’t able to keep up with shifting consumer habits as online rivals including Amazon.com Inc. siphoned off shoppers, while turnaround efforts were hobbled by mountains of debt.
Sears lost its footing in the 1980s with expansions into financial products such as banking, mortgages, insurance and credit cards. Walmart Stores Inc. supplanted Sears as the biggest retailer in the early 1990s.
Since 2009, the number of Sears stores has fallen from 3,900 including Kmart to 866 at the time of its October bankruptcy filing. Kmart hasn’t thrived either, shrinking its store count by about two-thirds in the past 10 years.
The winning bid is the latest in Lampert’s long list of maneuvers to turn the company around. Since engineering the $12.3 billion acquisition of Sears by Kmart in 2005, Lampert has cut more than $1 billion in annual expenses, sold off real estate, sold Craftsman tools and spun off clothing unit Lands’ End Inc.
Court approval of Lampert’s offer likely depends on the objections of unsecured creditors, Negisa Balluku of Bloomberg Intelligence said in a note. If the improvements in the winning bid don’t “placate the unsecured creditors, the sale hearing will likely be contested,” she said.
Creditors have said that Lampert initiated transactions that benefited him and have threatened legal action. Lampert has said the deals were properly crafted and kept the chain alive.
"If there is no release for the claims against him and his companies, then this is a win-win given the options, because it preserves jobs while not letting the prior insider transactions off the hook," David Wander, bankruptcy partner at Davidoff Hutcher & Citron. He represents an apparel vendor and a software vendor to Sears.
The scaled-back Sears chain faces daunting challenges, according to Christina Boni, an analyst at Moody’s Investors Service.
“Scale, which is critical to competing in retail today, will be lacking and its core customer proposition still remains in question,’’ Boni said. “Sears had been shrinking its store base and reducing costs in recent years but improvement in sales trends and profitability remained elusive.’’
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